February 14, 2019

The half-truths and half-falsehoods of MMT

Comment on Tom Hickey on ‘Paul Mason ― Alexandria Ocasio-Cortez’s Green New Deal is radical but it needs to be credible too’*

Blog-Reference

The mission of economics as a science is to figure out how the economy works. Nothing more, nothing less. The mission of economics is NOT to push a political agenda. The point to grasp is that there is the scientific sphere and the political sphere and both have to be kept apart. Why? Because politics corrupts science.#1 This happened also to economics. Economics is a failed/fake science.

The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong. MMT is no exception.

MMTers characterize themselves as Progressives. Generally speaking, Progressives claim to care for the welfare of their fellow citizens (local, national, global; present and future) and the environment (local, national, global; present and future). On the scale from individualism to globalism, MMTers argue for the primacy of national welfare.

From the standpoint of science, these political claims are not an issue for the economist. Political goals and means have to be discussed in the political sphere and ultimately decided by the Legitimate Sovereign. The economist as a scientist is alone concerned with the question of how the actual economy works.#2 The Legitimate Sovereign is free to use scientific knowledge for the implementation of policy. The bleak reality is, though, that economists have always been fully occupied with agenda pushing and have to this day no scientifically valid theory about how the economy works. Economic policy guidance NEVER had sound scientific foundations.

All this applies across the board from Adam Smith onward to MMT.

Economically, there are two questions for government spending (i) on what is the money spent (e.g. (ia) administrative-, (ib) military-, (ic) social-, (id) environmental-budget), and (ii) is government spending G less, equal, or greater than taxation T, i.e. (iia) G<T, (iib) G=T, (iic) G>T? Needless to emphasize that the questions about allocation and financing are constantly confused. The question is further confused by lumping it together with full employment policy.

MMTers claim that the answer to almost all economic/social problems is permanent deficit-spending/money-creation with some caveats with regard to inflation.

With regard to employment policy, for example, this is correct. Public deficit spending helps to reduce unemployment. Whether this is the best policy is another matter.

MMTers are right in pointing out that, as a matter of principle, money as the means of transaction is NOT a limiting factor for the realization of any combination of administrative, military, social, environmental spending on which the Legitimate Sovereign finally settles. However, as a matter of principle, deficit spending is the wrong way to bring money into the economy because of its effect on distribution. Axiomatically correct macroeconomics tells one that Public Deficit = Private Profit.

Paul Mason argues: “MMT gives no account of where economic growth or profit comes from other than within the monetary system itself.” This is not quite correct. MMTers deliberately obfuscate where profit comes from.#3, #4

Tom Hickey argues: “What conventional economics misses is how finance and economics are joined at the hip in a monetary production economy, and that this joint is structured in terms of double-entry accounting, which implies stock-flow consistent modeling using a unit of account.” This is a half-truth because MMT, too, gets macroeconomic accounting provably wrong.

Tom Hickey argues: “This was a major point made by Keynes that MMT economists agree with: Investment causes saving. It is not the case that saving causes investment.” This is patently false. Business sector investment I and household sector saving S are causally unrelated. The correct macroeconomic relationship is given by Q=I−S with Q as macroeconomic profit.

MMT policy has one property that makes it disadvantageous for WeThePeople and advantageous for the Oligarchy, i.e. because of the macroeconomic Profit Law it holds Public Deficit = Private Profit. So, no matter how the money is allocated between administrative, military, social, environmental spending, as long as there is deficit-spending/money-creation the Oligarchy makes a profit equal to the deficit.

The result is fabulous financial wealth on the one side and homungous public debt on the other side of the national balance sheet with all negative effects of MMT policy shoved beyond the time horizon.

MMT is proto-scientific garbage. MMTers are fake Progressives. In the political Circus Maximus, MMTers are agenda pushers, useful idiots, and stand-up comedians. The Green New Deal is only a new opportunity to sell the old program of deficit-spending/money-creation, i.e. of a permanent free lunch for the Oligarchy.#5

Egmont Kakarot-Handtke


* NewStatesman
#1 “The first thing a man will do for his ideals is lie.” (Schumpeter)
#2 “Senior, . . . , said indeed that the economist’s conclusions ‘do not authorize him in adding a single syllable of advice.’” (Schumpeter)
#3 Understanding public deficits, money, and profit
#4 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
#5 Fraud comes always in the cloak of charity, salvation, or threat of doom


Related 'Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems' and 'How MMT makes everybody happy' and 'MMT, money creation, stealth taxation, and redistribution' and 'MMT is ALWAYS a bad deal for the 99-percenters' and 'Full employment through the price mechanism' and 'MMT: If you’ve got a problem, I don’t care what it is, let me help. For the full-spectrum refutation of MMT see cross-references MMT.